Trading was suspended on Chinese markets after stocks tumbled 7% in the first trading of the year. The Chinese are using this tool, designed to limit the fluctuations of securities, for the first time. The fall from Asia led to a slump in European stocks as well.

The blue-chip CSI300 index ended down 7 percent by the time the trading was halted, the Shanghai Composite Index lost 6.9 percent and the technology-driven Shenzhen Composite fell by more than 8 percent.

Triggering FactorsThe market plunge comes after an official manufacturing survey, focusing on larger, state-owned Chinese companies, showed a fifth month of contraction, and a similar private survey focusing on smaller firms, indicated a 10th consecutive month of shrinking manufacturing.

Another factor is the imminent removal of a ban on major shareholders from selling stakes, which was put in place during the summer stock crash and is expected to be lifted Friday. The ban was put in place in July as Chinese stocks were falling fast. They have since rebounded 20%.

"The slump apparently triggered intensified selling, while the triggering of the circuit breaker seems to have heightened panic, as liquidity was suddenly gone and this is something no one has experienced before. It was a stampede." said Gu Yongtao, a strategist at Cinda Securities.

The Chinese tumble and the accelerated depreciation of the yuan drove markets elsewhere in Asia into the red. Japan’s Nikkei Stock Average fell 3.1%, Hong Kong’s Hang Seng Index fell 2.7% and South Korea’s Kospi lost 2.2%.

European markets slumped Monday, with the pan-European STOXX 600 down over 2.4% and Germany’s down over 4%. London’s FTSE 100 performed better, losing 2.4% while France’s CAC 40 was down over 2.6%.